Tag Archives: mechanic’s lien

Promise to Pay Doesn’t Change Mechanic’s Lien Deadline

By on February 20, 2018

In a recent decision, D5 Iron Works, Inc. v. Danvers Fish & Game Club, Inc., & Others, the Appeals Court of Massachusetts ruled that an owner’s promise to make payment to the subcontractor did not excuse the subcontractor’s failure to timely file suit.

In the case, the general contractor was delinquent in paying the subcontractor. The subcontractor timely filed a Notice of Contract  as well as a Statement of Account .  Nevertheless, Massachusetts lien law requires that a lawsuit be filed within 90 days of filing the Statement of Account.

According to the Subcontractor, the project owner represented that the subcontractor would be paid. The subcontractor testified that it relied on that representation in not timely filing the lawsuit.

Consistent with its prior decisions, the court ruled that mechanic’s lien statutory deadlines are to be strictly enforced, and denied the subcontractor’s claims.*  This case stands as a fresh reminder that the statutory deadlines for mechanic’s lien filings are enforced strictly, and not generally subject to extension or modification by private agreement.  Contractors and subcontractors should take care to observe deadlines ardently in order to avoid losing their mechanic’s lien rights.

 

*At the time of this article, it remains unclear whether either party will appeal the decision, which went unpublished. 

 

Punch List and Remedial Work May Not Extend the 120 Day Period to Secure a Mechanic’s Lien in New Hampshire

By on February 8, 2016

A recent ruling in the Rockingham County Superior Court offers further guidance to contractors regarding the extent of the right to maintain a mechanic’s lien in New Hampshire.  In the matter of Fabcon Precast, LLC, v. Zirkelbach Construction, Inc., et al. Strang Scott attorney Corey N. Giroux secured a discharge of the plaintiff’s mechanic’s lien as untimely for its client, Zirkelbach Construction, Inc., of Florida, despite the plaintiff performing work within the statutory 120 period to perfect a mechanic’s lien.

The plaintiff, Fabcon Precast, LLC, secured a mechanic’s lien against the subject project, on an ex parte basis, in September of 2015.  Fabcon completed its scope of work on the project in January of 2015, and issued a sworn payment application to the general contractor indicating that it had completed 100% of its scope of work on the project at that time.  Subsequently, in May of 2015, Fabcon returned to address punch list items related to its scope of work.  While on site to complete the punch list work, Fabcon’s workers performed some limited work that they had failed to perform initially that was properly part of Fabcon’s original scope of work on the project.

In order to secure a mechanic’s lien against the project, it was necessary for Fabcon to perfect its mechanic’s lien within 120 days of its last date of work on the project.  Thus, in order for its September 2015 attachment to be proper, Fabcon relied upon the punch list work and other work performed in May of 2015 to support its right to the mechanic’s lien.  Fabcon argued that its punch list work, and the “new” work performed – that is, the work it failed to perform that was part of its subcontract — was sufficient to support its mechanic’s lien pursuant to NH RSA 447, New Hampshire’s mechanic’s lien statute.

On behalf of its client, Strang Scott argued that the September 2015 lien was defective because Fabcon’s work in May of 2015 was insufficient to support the mechanic’s lien and therefore insufficient to extend the 120 day statutory period to perfect its lien.  In particular, it was argued that Fabcon’s sworn payment application in January 2015, which averred that Fabcon had completed 100% of its work in January 2015, commenced the running of the 120 period for Fabcon to perfect its lien, despite the subsequent performance of punch list, remedial, or original scope work by the plaintiff.  The Court agreed. 

The Court directed the plaintiff “could have preserved its right to extend the lien by representing [in January] that it still needed to complete some work.”  “Because it represented that the work was 100% complete, the Court finds that the work performed …. was remedial.  The 120 days [to perfect the plaintiff’s lien] began to run on January 15, 2015.”

This ruling should be instructive for subcontractors and general contractors alike.  Subcontractors should be careful to avoid representing to general contractors that they have fully completed their scope of work if punch list or other work remains to be performed on their subcontracts.  General contractors should take care to insure that their payment applications contain sworn statements from subcontractors as to the extent of the work performed or which payment is sought.  Contractors with questions regarding the extent, duration or nature of their mechanic’s lien rights would be well-advised to consult with their New Hampshire construction attorney.

Five for Fighting:  Subcontract Provisions Every Subcontractor Must Know to Get Paid

By on September 2, 2015

While there are any number of subcontract provisions that subcontractors must be aware of in order to negotiate subcontracts favorably, the following five provisions are critical to insuring that your business gets paid for the work it performs.

Lien Provisions

Did you know that it’s perfectly legal to relinquish your statutory right to a mechanic’s lien in New Hampshire?  If you did, give yourself a small pat on the back.  All too often, however, subcontractors – especially those new to working in New Hampshire – fail to appreciate that they can waive their right to assert or maintain a mechanic’s lien through their subcontract.  Worse still, it is often the case that subcontractors learn this valuable piece of information at the very worst time:  when they need to secure a mechanic’s lien for delinquent payment on a project.

In order to avoid this painful result, have your subcontracts reviewed carefully in-house or by your attorney, with a specific focus on any provision or language that relates to waiving or relinquishing the right to assert, maintain or perfect a lien or an attachment against the owner or its property.  If you see it, don’t accept it.  The mechanic’s lien is a very useful tool to make sure you get paid in New Hampshire, and you shouldn’t give it away before you start your project.   

Retainage Provisions 

Most every project contains a retainage provision, so how different could they be?  If you treat retainage provisions interchangeably, you may go a long time before you get paid that all important final five to fifteen percent of your contract balance.

Retainage provisions are like Skittles:  many flavors and some are better than others.  For example, if you’re a subcontractor that performs work early on in a project, it will be beneficial to negotiate retainage reductions based on acceptance of your scope of work by the project owner.  If you accept a common retainage provision that simply calls for the owner to withhold ten percent until the completion of the project, and you’re responsible for clearing the site and preparing for building or paving, it may be years before your final retainage payment becomes due, let alone gets paid.  Surely, that final ten percent looks better in your pocket than the owner’s.  As a result, it’s imperative that you closely monitor the retainage provision in each subcontract you execute.

Retainage isn’t intended to be an annuity that you receive years after you perform your work, but instead should provide the owner some security that you’ll finish your scope of work after you’ve been paid the majority of your contract balance.  If you focus on negotiating a retainage provision that fairly accounts for your scope of work and its timing in connection with the overall project, you shouldn’t need to wait extended periods of time to receive the final payment you’re owed. 

Change Order Provisions

There are virtually as many change order provisions as there are subcontracts.  It seems that every general contractor or construction manager that doesn’t utilize an AIA subcontract document creates its own change order provision.  With so many iterations of a provision meant to capture the same thing, more or less, what should your company be looking for? 

In short, to maximize your chances of getting paid for extra or change work, subcontractors should strive to negotiate change order provisions that come as close as possible to mirroring the reality of performing work on a project.  More often than not, that reality is a fast-paced project with a limited schedule where changed or extra work cannot wait weeks for signed change orders from executive level corporate representatives.  As a result, subcontractors are best served by negotiating change order provisions whose terms are not unduly burdensome, restrictive or otherwise difficult to satisfy. 

For instance, the author recently reviewed several subcontracts which directed that only the company president or another board level executive were authorized to approve a change in scope.  This is hardly practical for a subcontractor.  Ordinarily, a general contractor’s executives are not in the field regularly, and do not have the kind of “hands on” knowledge of a project that a project manager or superintendent possesses.  Worse still, executives are not readily available to subcontractors, as a general matter.  As a result, it’s not difficult to anticipate the difficulties that a subcontractor is likely to face when trying to balance the need to perform change order work, to maintain the project schedule and to secure the appropriate written authorization to perform the work.  These competing interests often lead to subcontractors performing work before they are authorized to do so according to the terms of their subcontracts, based on spoken assurances from onsite representatives of the general contractor.  This, in turn, exposes the subcontractor to the risk that the general contractor or the owner will reject the change order and that a fight will be necessary to get paid.

Because the competing interests in performing the work, meeting the schedule and securing appropriate authorization for changes in scope exist on so many projects, subcontractors are best served by negotiating change order provisions that mirror, as closely as possible, the anticipated conditions in field.  Doing so will go a long way toward insuring that you’ll be paid for your extras.  To the extent that you have any doubt regarding what steps are necessary to make sure you’re complying with the change order provision in your subcontract, you’re well advised to speak with your construction attorney.

Pay if Paid Provisions

Construction lawyers frequently discuss the concept of “risk allocation” with their clients.  So what is risk allocation?  At is core, risk allocation is concept used to describe how the parties to a contract divide or allot the various risks attendant to a particular contract. 

 A “pay if paid” provision is a tool used by general contractors and constructions managers to reallocate the risk of nonpayment, that for many years, was borne by the general contractor or construction manager.  A “pay if paid” provision operates exactly as it sounds.  That is, it’s a provision that conditions payment to a subcontractor for work it performs on the upstream contractor first receiving payment from the owner, or from the party upstream from it.  In other words, if the general contractor doesn’t get paid from the owner, the general contractor has no obligation to make payment to its subcontractor, regardless of whether the subcontractor fully and dutifully performed its work.

Does it make sense for a subcontractor to accept a “pay if paid” provision in its subcontract?  The answer is unequivocally no.  The vast majority of subcontractors have no ability to determine the financial solvency of the owner or the dependability of its construction financing.  Furthermore, a subcontractor has no direct contract with the owner, as the general contractor does, which thereby limits the subcontractor’s potential legal remedies if the owner elects not to pay for any number of reasons that have nothing to do with the subcontractor.  Because of these issues and others, subcontractors should be reticent to execute any contract that contains “pay if paid” language.  Because “pay if paid” language can be difficult to discern from other kinds of risk allocation devices, such as “pay when paid” and similar provisions, if you have any doubt about what your contract specifies seek the advice of your construction attorney.

Attorney’s Fees Provisions

Last, but certainly not least, subcontractors must understand what the attorney’s fees provisions mean in their subcontracts.  Like all of the foregoing types of provisions, there isn’t a one size fits all remedy.  What stands out about the importance of an attorney’s fee provision is that in some very important instances, the only way to enforce or determine your rights with respect to each of the kinds of provisions discussed above, is to employ the services of an attorney.  And that costs money.  So, if you don’t have an adequate provision of this kind, you’ll be forced to decide whether or not to pursue claims for payment (or other claims) based not upon whether you’re entitled to be paid, but rather by how much you’ll have to spend to get paid.

This isn’t lost on some less scrupulous general contractors.  In some instances, if a general contractor knows you’ll have to spend enough money to chase payments you’re owed that it becomes throwing good money after bad, they’ll simply pocket the money you should be paid and force you to bring suit against them.  This is no way to keep your projects profitable.

In order to make sure that you don’t fall victim to this scenario, insure that your contract has an attorney’s fees provision that calls for your fees to be paid in the event that you need the services of an attorney to enforce your rights under your subcontract.

So what do you do when the general contractor won’t agree to an attorney’s fee provision that runs in your favor?  In that instance, you negotiate what is known as a “prevailing party” provision.  A “prevailing party” provision calls for either party to a contract to receive their attorney’s fees and other costs from the other side in the event that a particular party prevails in an arbitration or lawsuit.  As is the case with each of the foregoing kinds of provisions, the devil is in the details of the provision.  Nevertheless, if you’re diligent about reviewing (or having someone else review) the language of any proposed attorney’s fee provision, you’ll be much less likely to learn that your subcontract only gives the general contractor the right to recover its attorney’s fees. 

If you master the foregoing five kinds of provisions, or engage your construction attorney to help you do so, you will negotiate better subcontracts before you get started and you’ll almost certainly forestall a variety of construction disputes before they have the opportunity to ripen.  Should you have questions regarding any of the information presented here, you’d be well advised to contact your New Hampshire or Massachusetts construction attorney.

Do You Have a Contract You Can Lien On?

By on July 21, 2015

To file a mechanic’s lien in Massachusetts, a contractor must have a written contract with the property owner (or owner’s authorized agent).  Subcontractors and material suppliers must show that written contracts exist for their labor and materials as well.  Although this may seem like a rather simple requirement, in some instances whether a written contract exists is not entirely clear.

In 1996, the legislature amended Mass. Gen. Laws c. 254 (the mechanic’s lien statute) to define “written contract” as “any written contract enforceable under the commonwealth.” This means courts can rely on standard contract law to determine whether a written contract is sufficient for a mechanic’s lien.  Taking into account the new amendment, the appellate court in Harris v. Moynihan Lumber of Beverly, Inc., concluded that a memorandum or writing sufficient to satisfy the Massachusetts statute of frauds should also meet the requirement of a written contract for purposes of the statute. The statute of frauds requires a writing “signed by the party to be charged,” in the event that a contract cannot be performed in less than one year’s time. The requirements of the statute of frauds are less stringent than the pre-1996 standard of “an entire and continuing arrangement in writing.”

On many occasions since 1996, Massachusetts courts addressed the question of what constitutes a written contract for purposes of establishing a valid mechanic’s lien.  While the cases have led to disparate results, several rules have emerged.  First, in order for a contract to be enforceable, the terms need not all appear on the same document.  Taken together, however, the series of writings must contain the essential terms of a contract, such as price, quantity, time of performance, and type of material or services.  Noreastco Door & Millwork, Inc. v. Vahradahatu of Massachusetts, Inc. (finding that a one-page cover sheet “original proposal” and a one-page reply memorandum did not constitute a contract for the purposes of the mechanic’s lien statute).  The purpose of this requirement is to ensure project owners have adequate notice of contract terms, so they may make informed choices to protect their interests.  Second, at least one of the documents being used as evidence of a contract must be signed by the party against whom the contract is being enforced (note that e-mail acceptance may be sufficient for a signature).  Third, the connection between the papers may be established by oral evidence, which, taken together with the content of the documents, shows the intent of the parties was to form a contract.  In Moynihan Lumber, Inc., the court found that a series of documents including a sales contract, credit application, and price quotations taken together constituted a contract for mechanic’s lien purposes.  In contrast, that same year the court in Nat’l Lumber Co. v. Fort Realty Corp., found no sufficient written contract because the documents lacked information on the price and quantity of the supplies, which is necessary information for owners to possess in order to protect their interests.  In Scituate Ray Precast Concrete Corp. v. Intoccia Const. Co. Inc., however, a series of signed delivery tickets and their corresponding invoices satisfied the statute of frauds and met the requirements of the mechanic’s lien statute, provided that the person signing for the deliveries was authorized to do so.

The best case scenario is for all parties to sign a single document with clear terms. The realities of the construction industry frequently do not allow that luxury.  When a fully signed contract with containing all the necessary terms hasn’t been executed, it is important to consult with a Massachusetts construction attorney to determine whether the documents you have are sufficient to support your mechanic’s lien.

Subcontractors: Do You Really Know What You’ve Waived in Your Lien Waiver?

By on April 27, 2015

Many subcontractors treat lien waivers interchangeably:  that is, if you’ve seen one, you’ve them all.  More and more, treating lien waivers in this manner could lead to significant and costly consequences.  Increasingly, general contractors and construction managers are providing subcontractors and suppliers with a new breed of lien waiver.  Unlike traditional lien waivers that sought only to protect the owner from the prospect of unwanted labor and materials (mechanic’s) liens cropping up on their projects, many new “lien waivers” are crafted with the intent for the subcontractor to agree to far more than a simple waiver of its lien.

In New Hampshire, and other jurisdictions, it’s well-settled law that contractors and subcontractors may waive their right to assert or perfect a mechanic’s lien by contract.  Savvy owners, developers and general contractors have long drafted contracts with this in mind.  As more and more subcontractors rejected provisions that limited or restrained their right to assert mechanic’s liens, owners, developers and general contractors have started to shift additional waiver language from subcontracts into lien waivers.  As an illustration, consider the following, taken in part from a lien waiver recently reviewed by the author:

 “In consideration of receipt of payment, the undersigned irrevocably and unconditionally releases and waives any and all mechanic’s liens or other liens or right to claim any and all mechanic’s liens or other liens against [the property].  Additionally, the undersigned waives and releases any and all other claims against the Owner, the property or the Contractor, or any other claims of any kind whatsoever in connection with the Subcontract and the property.  The undersigned shall defend, indemnify and hold harmless the Owner and Contractor against any lien, bond, claims or suits in connection with the materials, labor and everything else in connection with the subcontract.

In this instance, the subcontractor waived not only its right to assert a mechanic’s lien or any other lien upon accepting payment, but the subcontractor also waived its right to assert ANY claim related to the contract or the property.  Furthermore, the subcontractor has affirmatively agreed to indemnify the owner and contractor for any claims connected to the materials, labor or “anything else in connection with the subcontract.”  Among other things, this means that contractor has agreed to pay the general contractor and the owner for any costs they might incur in dissolving a lien on the project arising from the subcontractor’s sub-subcontractors or suppliers or in resolving any other claim or lawsuit connected with the sub-subcontractor or material supplier’s involvement in the project.  This so-called “waiver,” contains substantially more than a waiver of the subcontractor’s right to claim a lien in consideration of its partial payment on the subcontract.  

Some lien waivers go a step further.  Consider the following language, taken in part, from another lien waiver recently reviewed by the author:

 “In consideration of the receipt of the payment above, the receipt and sufficiency of which are hereby acknowledged, [the subcontractor] releases and forever discharges [the contractor and owner] of and from any and all claims, causes of action, liabilities and other obligations respecting payment for, upon or by reason of work, labor and/or materials furnished through the date shown below to the construction project.”

At first blush, this provision appears ordinary enough.  A more thorough consideration of the highlighted language, however, reveals that the provision is carefully calculated to insure that each month the subcontractor waives its right to pursue payment for all work performed before the date the lien waiver is signed. 

So why is this a problem?  To the extent that the subcontractor signing such a lien waiver performed extra work, change order work or has disputed work that occurred prior to signing the lien waiver, and the subcontractor accepts the payment referenced in the lien waiver without carving an exception for the added, changed or disputed work, the subcontractor has agreed to relinquish its right to any further payment, a lien or a claim for payment for that work.  In other words, the subcontractor has agreed not to be paid anything further for work performed through the date the lien waiver is signed, regardless of whether the subcontractor is otherwise entitled to payment.  In tying the subcontractor’s waiver to a particular date in time, rather than to an agreed upon amount to be paid, this waiver extinguishes any claim for payment for any work performed that wasn’t included in the subcontractor’s payment for which the lien waiver was signed.  This subtle, but very important distinction, can prove costly when the subcontractor fails to appreciate its impact on its right to payment.

Other lien waivers seek to make the subcontractor a trustee, converting the funds paid to the subcontractor into trust funds for the benefit of its subcontractors and suppliers, by agreement.  Take the following example:

 “The undersigned [subcontractor] acknowledges and agrees that it is receiving the funds paid in consideration of this payment application as a trustee, and said funds will be held in trust for the benefit of all subcontractors, materialmen, suppliers and laborers who supplied work for which the beneficiaries or their property might be liable, and that the [subcontractor] shall have no interest in such funds until all these obligations have been satisfied in full.”

In this instance, rather than taking payment as the rightful owner of the funds paid, the subcontractor accepts payment as a trustee for its sub-subcontractors and materials suppliers, installing affirmative obligations and fiduciary duties on the subcontractor to its sub-subcontractors and suppliers, which otherwise do not exist.  By virtue of the language in this provision, the subcontractor has agreed to restrict its discretion and ability to use the funds paid to it for its work as it deems necessary, replacing its discretion with the affirmative obligation to hold and distribute the funds paid to its subcontractors and suppliers on behalf of the owner and general contractor.  In a perfect world, every subcontractor would pay each of its sub-subcontractors and suppliers in full out of each payment it received on a project.  In the real world, there are often good business reasons for subcontractors to withhold some or all of the payments claimed due by its sub-subcontractors and suppliers, or to apply certain portions of the payments it receives elsewhere.  This language removes the subcontractor’s discretion to do so.

With increasing frequency, developers, owners and general contractors employ “lien waivers” intended to do much more than insure that mechanic’s liens aren’t perfected against a property after payment has been made.  Instead, this new breed of “lien waivers” is intended to create “knowing” waivers of subcontractors’ affirmative rights after they have signed their subcontract.  These “lien waivers” are intended to rewrite the bargain to which the parties agreed in their subcontract by downshifting the owner’s and general contractor’s desired contractual terms into a lien waiver when it might otherwise have been rejected in the subcontract.  It’s no longer sufficient for subcontractor’s to review only the proposed subcontract and scope of work.  Subcontractors must review proposed lien waivers carefully to insure that the lien waivers aren’t an agreement not to be paid.  If you have any questions or concerns regarding the provisions of your lien waivers, consult your construction attorney for a thorough assessment of the risks and exposures.

 

E-mail Acceptance Can Constitute Contract for Massachusetts Mechanic’s Liens

By on March 9, 2015

The Massachusetts Superior Court recently held that electronic communications and signatures — no less than physically signed documents — can constitute a “written contract” for general contractors, subcontractors and construction material suppliers, within the meaning of the Massachusetts mechanic’s lien statute, G. L. c. 254. In Clean Properties, Inc. v. Riselli (“Clean Properties”), the parties mainly communicated via e-mail. The defendant, a property owner, sought to discharge the mechanic’s lien levied against her property for work performed by the plaintiff, a contractor. Because the parties never executed a paper contract, the property owner argued that the contractor could not meet the mechanic’s lien statute’s requirement of a written contract. The court held otherwise.

Applying the Uniform Electronic Transactions Act (UETA) adopted by Massachusetts in 2004, the court held that, where there is a clear intent between parties to conduct their business via electronic means, an enforceable contract can be formed when one accepts a written offer via e-mail. Thus, in certain circumstances, an electronic signature — such as one’s name at the end of an e-mail — can have the same legal effect as a physical signature on paper. See G.L.c. 110G, §7(b) (“contracts may not be deemed unenforceable solely because electronic records were used in formation.”).

In Clean Properties, the parties’ e-mail correspondence made clear that each intended to enter into a contract. Specifically, the court held that the contractor had extended an offer by attaching contract terms to an e-mail with instructions for the property owner to respond, if desired, with an acceptance. The property owner replied as instructed and included her name at the end of the e-mail. Because this reply formed a contract under the UETA, the court concluded that the parties’ e-mail communications sufficed to establish a written contract within the meaning of G. L. c. 254. Contractors and construction material suppliers should still be diligent in getting formal contracts signed. However, this is a positive sign for the future use of electronic communications in negotiating construction contracts.

The case is Clean Properties, Inc. v. Riselli (Salinger, J.) (Middlesex Superior Court) (Docket No. MICV2014-04742) (June 18, 2014).

What Every Massachusetts Subcontractor Must Know to Limit Risk and Get Paid for Work in New Hampshire

By on February 2, 2015

Massachusetts subcontractors securing work in New Hampshire will encounter an unfamiliar legal landscape containing more than one trap for the unwary. In order to strike a fair deal and to put your business in the best position to get paid for your work, every subcontractor should be aware of certain basic differences in laws of the Granite State.

Put Your Business in “Good Standing”

Before any foreign based entity can transact business in New Hampshire, it must be registered with the Secretary of State. The process for registering your business is relatively straightforward and requires that the entity file several basic documents, pay a filing fee and name a registered agent in New Hampshire to accept service of process on behalf of the foreign entity. After complying with the Secretary of State’s requirements, your business will be in Good Standing with the State of New Hampshire and ready to move forward with projects in New Hampshire.

Striking a Fair Deal

In order to reach an agreement with a general contractor or construction manager that your business can live with and live up to, you need to know the laws that govern your contract. New Hampshire law varies in important ways from its counterpart in Massachusetts. Being familiar with some of the basic and important distinctions in the law will put your business in a better position to compete and succeed on your subcontracts.

One of the more important distinctions of which to be mindful is that in New Hampshire a subcontractor can waive its right to assert a mechanic’s lien against a project by contract. Because many general contractors, construction managers and savvy owners in New Hampshire know this, these waiver provisions are found commonly in contracts provided to subcontractors. Because Massachusetts law prohibits these provisions, subcontractors agreeing to perform work in New Hampshire must devote full attention to this detail, in order to avoid extinguishing mechanic’s lien rights unknowingly. If any doubts linger about whether a particular provision in a contract will result in a waiver of lien rights, it is important to consult your attorney.

Another important distinction exists with respect to conditional payment provisions, often known as “pay-if-paid” or “pay-when-paid.” With the enactment of the Massachusetts Prompt Payment Act in 2010, subcontractors gained significant rights in private contracting that were formerly the subject of bargaining between the parties. One of the chief among those rights is that in private construction projects with a prime contract in excess of three million dollars, so-called pay-if-paid provisions are unenforceable except in two rare instances. Since the enactment of this statute, pay-if-paid provisions in Massachusetts rarely result in significant losses to subcontractors.

In New Hampshire, however, no prompt payment act or functional equivalent has been enacted, and the New Hampshire Supreme Court has not addressed the pay-if-paid issue directly. Accordingly, significant uncertainty remains regarding the enforceability of these provisions in all private construction contracts, and subcontractors are wise to avoid or limit these provisions when possible.

Working in tandem with the Prompt Payment Act, the recently enacted Massachusetts Retainage Act limits owners and general contractors withholding retainage to no more than five percent on each progress payment on private construction contracts of three million dollars or more. Like the Prompt Payment Act, New Hampshire has no equivalent law to the Retainage Act. As a result, retainage provisions in construction contracts are subject to bargaining, and general contractors and owners commonly propose withholding retainage of ten percent or more. Because these provisions are not subject to any maximum by law, subcontractors should endeavor to negotiate these provisions down or, at a minimum, negotiate a phased release of retainage over the course of a project. Reducing or phasing retainage is vitally important for subcontractors that perform work at the inception of a project, like site work contractors, because commercial contracts commonly direct that withheld retainage be released only after completion of the entire project, and not after completion of a particular subcontractor’s work. As a practical matter, this can mean months or years of delay until retainage is released if the retainage provision is not drafted or revised to avoid this result.

Getting Paid

Subcontractors that avoid waiving lien rights, avoid pay-if-paid provisions, and negotiate fair retainage schedules have taken important steps toward getting paid for completed work. The job isn’t done completely, however, as important steps remain to secure payment. Most notably, subcontractors are well advised to take steps to preserve their mechanic’s lien rights at the outset of a project and during its duration as New Hampshire’s mechanic’s lien law and procedure are markedly different from that encountered in Massachusetts.

New Hampshire mechanic’s lien law draws an important distinction between those that have a direct contract with the project owner (usually the general contractor) and those that do not (subcontractors and suppliers). If you fall into the latter category, as a first or second tier subcontractor or supplier, you must have a contract with the general contractor or first tier subcontractor and provide the project owner written notice of your lien rights. Ostensibly, the law requires the written notice to prevent the owner from becoming subject to liability for claims asserted by parties that were unknown to the owner. As practical matter, providing written notice to the owner of lien rights is a matter of preserving a subcontractor’s ability to establish, perfect and maintain a mechanic’s lien on a project in the event that payments are late or aren’t coming at all.

In New Hampshire, a subcontractor’s right to assert and enforce a mechanic’s lien is directly tied to when the subcontractor provides the required notice of lien rights. In an ideal world, subcontractors would provide the required notice to the owner at the outset of the project, preserving the full value of their lien. More frequently than not, however, subcontractors fail to send the owner notice of lien rights until after beginning work and a problem has arisen. When that occurs, a subcontractor’s lien rights are limited to the amount remaining due from the owner or general contractor to the party upstream of the subcontractor. In other words, the subcontractor’s lien is good only to the extent of any payment remaining due to the party from which the subcontractor will be paid when notice is given to the owner. This can be problematic when payments slow down or stop completely toward the end of a project and the subcontractor failed to provide notice of its lien rights at the beginning of the project, because notice may arrive at a time when little or nothing remains due to the party from which the subcontractor seeks payment through its contract. In that instance, even if the subcontractor has complied in all other respects with its contractual obligations, no valid lien exists in connection with its work on the project. As a result, the importance of providing early notice of lien rights to the owner cannot be overstated.

The lien process has other pitfalls for uninitiated. In New Hampshire, mechanic’s lien rights are valid and enforceable for only 120 days following the subcontractor’s last date of work, or delivery of materials in the case of a supplier. Ordinarily, a subcontractor’s last date of work is calculated from the point of substantial completion of the subcontractor’s work, and closing punch list items or returning to the project to remedy deficient or defective work will not support an extension of the 120 day deadline to perfect the lien.

In order to perfect a mechanic’s lien, subcontractors must file suit in court, petition the court for a mechanic’s lien attachment and record the lien with the Registry of Deeds in the county in which the project is located within the 120 day period subsequent to substantial completion. Failure to do any of the foregoing is fatal to enforcing a mechanic’s lien.

So, given the complexities associated with establishing and perfecting a lien in a timely fashion, why do it when the general contractor or owner will simply “bond it off?” The simple answer is that in New Hampshire the prevailing law does not compel a subcontractor to accept alternate security for its perfected lien. As a result, owners and general contractors cannot force a valid mechanic’s lien to be discharged solely on the basis of providing alternate security for subcontractors’ claims. In many circumstances, there are very good reasons why subcontractors prefer to maintain mechanic’s liens rather than accepting bonds or other security. For a more detailed recitation of those reasons, or to understand mechanic’s lien law in New Hampshire in greater detail, please consult a New Hampshire construction attorney.  

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